Focus shifts to Kenya, China trade terms as imbalance persists

Summary

The massive trade deficit between Kenya and China remains in the spotlight despite significant shifts in the value of dealings between the two nations over the first-half of this year.

Kenya’s imports from China shrunk in the period while its exports to the Asian nation grew substantially — eliciting a feel-good-factor, but analysts reckon the exports surge is hardly enough to narrow the balance of trade, heavily in favour of China.

Imports from the Asian nation declined 16.3 percent to Sh169.6 billion in the first six months compared to the same period in 2018 while Chinese orders for Kenyans goods jumped 74.13 percent to Sh7.48 billion — data by the Kenya National Bureau of Statistics (KNBS) showed.

Analysts, however, warn that the deficit remains too big and warrants further measures to trim it by pushing for uptake of more Kenyan goods in the Chinese market.

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The massive trade deficit between Kenya and China remains in the spotlight despite significant shifts in the value of dealings between the two nations over the first-half of this year.

Kenya’s imports from China shrunk in the period while its exports to the Asian nation grew substantially — eliciting a feel-good-factor, but analysts reckon the exports surge is hardly enough to narrow the balance of trade, heavily in favour of China.

Imports from the Asian nation declined 16.3 percent to Sh169.6 billion in the first six months compared to the same period in 2018 while Chinese orders for Kenyans goods jumped 74.13 percent to Sh7.48 billion — data by the Kenya National Bureau of Statistics (KNBS) showed.

Analysts, however, warn that the deficit remains too big and warrants further measures to trim it by pushing for uptake of more Kenyan goods in the Chinese market.

“The balance of trade is heavily in favour of China, yet China with its population of 1.4 billion people remains a strategic market for Kenya’s exports,” Dr Oscar Otele, Political Science lecturer and researcher at University of Nairobi says.

For the last two years imports from China in the first half of the year have dipped having peaked in 2017 at Sh213 billion before falling to Sh202 billion in 2018 and the present Sh169 billion.

Kenya’s year-on-year imports from China hit the highest level in 2017 at Sh390 billion before sliding to Sh370 billion in 2018. However, Kenya exported a paltry Sh11 billion to China in 2018 compared to Sh9 billion in 2017.

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Analyst say the decline in Chinese imports may be directly linked to the ending phase two of the Standard Gauge Railway project rather than rebalancing of the huge trade deficit.

“It is mainly the SGR and construction, machinery and capital imports associated with it, I have not seen the specific data but looking at general industrial capacity and whether there has been a boost in local production, it is unlikely that the deficit is being reduced by other things,” notes Jibran Qureishi, Regional Economist E.A at Stanbic Bank.

Over the last decade China has grown to become Kenya’s largest trade partner and biggest bilateral lender which has come with sociocultural and political repercussions including fears that the second biggest global economy is trapping Kenya in debt and exporting excess Chinese population who are taking over local informal businesses such as mitumba.

Chinese products have also been blamed for stifling local industrial production while construction companies from the Asian State have taken over from local firms owing to their ability to mobilise cheaper credit at home, which have also made them dominate importation of equipment and material.

“Chinese imports are generally believed to be displacing locally manufactured commodities. This is partly true due to the cost of production and economies of scale that allows Chinese goods to be cheaper in the market. On the other hand, Chinese imports may compete or replace imports from other countries thus lowering the overall cost and altering the balance of trade in Kenya’s favour,” says Dr Otele.

The trade imbalances are a function of the types of imports Kenya gets from China, which are high value and the type of exports to the state, which are now mostly minerals.

There has been tremendous growth in imports between 2015 and 2017 with the most notable goods including railway and track construction material, motor vehicles for the transport of goods, mechanical shovels and excavators.

Kenya’s highest export values are led by ores and concentrates of molybdenum, niobium, tantalum, vanadium and zirconium; followed by kerosene and other medium oils.

Forum on China-Africa Cooperation

China’s trade relations with Kenya can be traced to the British colony that exported pyrethrum, sisal fibre, raw cotton and wattle bark extract and imported tea, fabrics, fruit preparations at a trade surplus to Kenya.

Trade dipped in the 1960s following a diplomatic row which was resolve in the 1980s but momentum took off in the late 1990s following liberalisation of the Kenyan foreign trade and industrialisation boom in China.

China aggressively pushed bilateral trade via the Forum on China-Africa Cooperation (FOCAC) following President Jiang Zemin’s tour of Africa in 1996 which saw the bilateral trade volume with Kenya rise from $136 million in 2000, to $600 million in 2006.

Although standards and quantitative restrictions have made the Chinese market hard to access, scholars are urging Kenya to push China for favourable policies that will ease access to their market.

As such, they say Kenya should negotiate for duty-free access for commodities that Kenya has a comparative advantage. And as China’s economy moves towards consumption, Kenya could seize the opportunity to export financial and business services.

Kenya could also create special economic zones that will attract labour intensive industries from China which could be encouraged to engage in joint ventures with local firms to create jobs, ensure technological transfer and enable the efficient restructuring of domestic firms.

Kenya’s exports to China grew in the first-half of 2019 — mainly on account of an aggressive trade promotion and marketing campaigns in China, primarily aimed at expanding the market for Kenyan farm produce.

“President Uhuru Kenyatta has created a strong bond between Kenya and China which is why Kenya exports continue increasing in the Chinese market,” Mr Biwott says.

Kenya’s trade with China has been stormy in the recent years over claims of unfair competition by the Asian giant.

Only recently there was storm over rising shipment of goods such as garlic and fish from China into the Kenyan market.

A crackdown by a multi-agency team including the Kenya Revenue Authority (KRA) and the Kenya Bureau of Standards (Kebs) and the Anti-Counterfeit Agency also unearthed a grey economy swamped with contraband goods mainly sourced from China.